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Thursday, March 27, 1997

Sting nets fraudulent use of much-touted welfare debit cards

By MICHAEL GRACZYK

Associated Press Writer

HOUSTON (AP) - A 10-week sting operation run by federal, state and local authorities and touted Wednesday as the first of its kind in the nation has left 225 people facing charges for welfare fraud for improperly using Texas' electronic benefits Lone Star Card.

In a scheme financed by the U.S. Department of Agriculture, which administers the federal food stamp program, Houston police officers posing as convenience store clerks accepted requests from customers to improperly scan the plastic card - which is like a bank debit card - in exchange for cash, instead of groceries.

"We believe this has opened the door for us and gave us a format to continue to do these kinds of things," said Gordon Hardy, director of electronic benefits transfer trafficking for the Texas Department of Human Services.

Under what officials said is a growing illegal practice, unscrupulous merchants ring up phony food purchases in exchange for cash and pocket a percentage of the transaction, with 30 percent being the typical rate in Houston.

For example, a retailer agreeing to debit a welfare recipient's account for $100 in non-existing purchases could run the card through an electronic scanner, give the person $70 and keep the remaining $30 for himself. Given the speed of electronic banking, the reimbursement from the state would show up in the retailer's account the next day.

Authorities noted four retailers raided in a sweep of the same south Houston area late last year were billing state welfare agencies $280,000 per month, with 90 percent of that believed to be illegal. One merchant alone rang up $140,000 in Lone Star Card receipts.

Officials said they have been addressing the problem with retailers and wanted to turn their attention to welfare recipients who were improperly using their so-called EBT cards. So they set up a convenience store in south Houston, which they called the "Snack Shack and Meat Market."

Two officers posed as clerks and other officers worked behind the scenes videotaping the transactions. On their fifth day of business, they got their first illegal request from a welfare recipient and then relied on word of mouth for 10 weeks. The store was shut when officers staged a phony bust last December.

"It was an interesting experience," Frank Quinn, a Houston police sergeant who worked the sting, said. "We'd never been in the grocery business before."

As a result, 88 people have been charged, 79 cardholders are under review by the Harris County district attorney's office and another 58 are in the process of being charged. So far, 42 people have been arrested for fraud and another 84 cases have been resolved.

Penalties can range from probation to up to 10 years in prison, depending on whether the person has a criminal record. The cardholders also lose their cards.

The investigation is viewed as important because while Texas is the largest of only eight states involved in the electronic card program, 30 more have the plan under consideration and the Clinton Administration wants EBT cards nationwide.

State Comptroller John Sharp, the patron of the Lone Star Card program that began in 1995, hailed the results of the sting in a statement released in Austin as proof that electronic tracking can identify welfare cheats.

"Taxpayers throughout Texas have come to expect increased safety and efficiency under the new system," he said.

However, officials appearing at a Houston news conference acknowledged they had no idea how much fraud or abuse existed.

"When we get into EBT trafficking, I hate to tell you this but nobody has got a good hard number on how many of those dollars get diverted," Hardy said.

"In Texas alone, we probably award $2 billion a year in food stamp benefits to over 800,000 households. Now you can't have any kind of system ... with that many partners, that many people involved, that much money, and not have some money diverted."

Authorities said while the electronic cards are praised for keeping track of purchases, they defended the use of a sting operation because records of electronic transfers alone would not be enough to stand up in court.

"You have to observe constitutional rights," Carl Hobbs, a Harris County assistant district attorney, said. "We have to be able to show how the individual knowingly participated in an illegal transaction. You still have to establish a criminal wrongdoing." Send a Letter to the Editor about This Story | Start or Join A Discussion about This Story
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